ITEM 1. FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements
(columnar dollars in millions except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented. The adjustments are of a normal recurring nature, except as otherwise noted. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in the Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our") Annual Report on Form 10-K for the fiscal year ended May 26, 2019.
The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the full fiscal year.
Basis of Consolidation — The Condensed Consolidated Financial Statements include the accounts of Conagra Brands and all majority-owned subsidiaries. All significant intercompany investments, accounts, and transactions have been eliminated.
Revenue Recognition — Our revenues primarily consist of the sale of food products which are sold to retailers and foodservice customers through direct sales forces, broker, and distributor arrangements. These revenue contracts generally have single performance obligations. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, consumer coupon redemption, unsaleable product, and other costs. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis and, therefore, we do not have any significant financing components.
We recognize revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon delivery of the goods to the customer. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. We assess the goods and services promised in our customers' purchase orders and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct.
We offer various forms of trade promotions and the methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Our promotional activities are conducted either through the retail trade or directly with consumers and include activities such as in-store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of these activities are recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are recognized as a change in management estimate in a subsequent period.
Comprehensive Income — Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity, and changes in prior service cost and net actuarial gains (losses) from pension (for amounts not in excess of the 10% corridor) and post-retirement health care plans. For foreign investments we deem to be essentially permanent in nature, we do not provide for taxes on currency translation adjustments arising from converting an investment denominated in a foreign currency to U.S. dollars. When we determine that a foreign investment, as well as undistributed earnings, are no longer permanent in nature, estimated taxes will be provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.
The following table details the accumulated balances for each component of other comprehensive income, net of tax:
|
|
February 23,
2020
|
|
|
May 26,
2019
|
|
Currency translation losses, net of reclassification adjustments
|
|
$
|
(92.4
|
)
|
|
$
|
(90.9
|
)
|
Derivative adjustments, net of reclassification adjustments
|
|
|
29.9
|
|
|
|
34.0
|
|
Pension and post-employment benefit obligations, net of reclassification adjustments
|
|
|
(9.5
|
)
|
|
|
(53.4
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(72.0
|
)
|
|
$
|
(110.3
|
)
|
5
The following table summarizes the reclassifications from accumulated other comprehensive loss into income:
|
|
Thirteen weeks ended
|
|
|
Affected Line Item in the Condensed Consolidated
Statement of Earnings1
|
|
|
February 23, 2020
|
|
|
February 24, 2019
|
|
|
|
Net derivative adjustment, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
$
|
(0.9
|
)
|
|
$
|
(0.9
|
)
|
|
Interest expense, net
|
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
|
Total before tax
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
Income tax expense
|
|
|
$
|
(0.7
|
)
|
|
$
|
(0.6
|
)
|
|
Net of tax
|
Pension and postretirement liabilities:
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
Pension and postretirement non-service income
|
Net actuarial gain
|
|
|
(1.1
|
)
|
|
|
(0.3
|
)
|
|
Pension and postretirement non-service income
|
Curtailment
|
|
|
0.2
|
|
|
|
—
|
|
|
Pension and postretirement non-service income
|
Settlement
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
Pension and postretirement non-service income
|
|
|
|
(2.8
|
)
|
|
|
(0.1
|
)
|
|
Total before tax
|
|
|
|
0.6
|
|
|
|
—
|
|
|
Income tax expense
|
|
|
$
|
(2.2
|
)
|
|
$
|
(0.1
|
)
|
|
Net of tax
|
|
|
Thirty-nine weeks ended
|
|
|
Affected Line Item in the Condensed Consolidated
Statement of Earnings1
|
|
|
February 23, 2020
|
|
|
February 24, 2019
|
|
|
|
Net derivative adjustment, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
$
|
(2.5
|
)
|
|
$
|
(1.1
|
)
|
|
Interest expense, net
|
|
|
|
(2.5
|
)
|
|
|
(1.1
|
)
|
|
Total before tax
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
Income tax expense
|
|
|
$
|
(1.9
|
)
|
|
$
|
(0.8
|
)
|
|
Net of tax
|
Pension and postretirement liabilities:
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
Pension and postretirement non-service income
|
Net actuarial gain
|
|
|
(3.4
|
)
|
|
|
(1.1
|
)
|
|
Pension and postretirement non-service income
|
Curtailment
|
|
|
0.8
|
|
|
|
—
|
|
|
Pension and postretirement non-service income
|
Settlement
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
Pension and postretirement non-service income
|
|
|
|
(4.2
|
)
|
|
|
(0.5
|
)
|
|
Total before tax
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
Income tax expense
|
|
|
$
|
(3.2
|
)
|
|
$
|
(0.4
|
)
|
|
Net of tax
|
1Amounts in parentheses indicate income recognized in the Condensed Consolidated Statements of Earnings.
Cash and cash equivalents — Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition, including short-term time deposits and government agency and corporate obligations, are classified as cash and cash equivalents.
Reclassifications and other changes — Certain prior year amounts have been reclassified to conform with current year presentation.
Use of Estimates — Preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make certain estimates and assumptions. These estimates and assumptions affect reported amounts of assets, liabilities, revenues, and expenses as reflected in the Condensed Consolidated Financial Statements. Actual results could differ from these estimates.
Accounting Changes — In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, Topic 842, which requires lessees to reflect most leases on their balance sheet as assets and obligations. We adopted this ASU in the first quarter of fiscal 2020 using the optional transition method provided under ASU 2018-11, Leases, Topic 842: Targeted Improvement, issued in July 2018, allowing for application of the standard at adoption date, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We also elected certain practical expedients permitted under the transition guidance, including not reassessing whether existing contracts contain leases and carrying forward the historical classification of leases. The most significant impact of adoption on our Condensed Consolidated Financial Statements was the recognition of right-of-use ("ROU") assets and lease liabilities for operating leases. Our
6
accounting for finance leases remained substantially unchanged. Upon adoption, we had total lease assets of $238.4 million and total lease liabilities of $267.0 million. The difference is primarily due to prepaid and deferred rent balances that were reclassified to the ROU asset value. The adoption of this ASU did not result in a cumulative-effect adjustment to the opening balance of retained earnings and did not impact our Condensed Consolidated Statements of Earnings or our Condensed Consolidated Statements of Cash Flows. See Note 12 for additional information related to our lease arrangements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The effective date for the standard is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. We elected to early adopt this ASU in fiscal 2020. The adoption of this guidance did not have a material impact to our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles of ASC 740 as part of an overall simplification initiative. The effective date for the standard is for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. We elected to early adopt this ASU in fiscal 2020. The adoption of this guidance did not have a material impact to our consolidated financial statements and related disclosures.
Recently Issued Accounting Standards — In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), to update the methodology used to measure current expected credit losses ("CECL"). This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The effective date for the standard is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We do not expect ASU 2016-13 to have a material impact to our consolidated financial statements and related disclosures.
2. ACQUISITIONS
On October 26, 2018, we acquired Pinnacle Foods Inc. ("Pinnacle"), a branded packaged foods company specializing in shelf-stable and frozen foods. Pursuant to the Agreement and Plan of Merger, dated as of June 26, 2018 (the "Merger Agreement"), among the Company, Pinnacle, and Patriot Merger Sub Inc., a wholly-owned subsidiary of the Company that ceased to exist at the effective time of the merger, each outstanding share of Pinnacle common stock was converted into the right to receive $43.11 per share in cash and 0.6494 shares of common stock, par value $5.00 per share, of the Company ("Company Shares") (together, the "Merger Consideration"), with cash payable in lieu of fractional Company Shares. The total amount of consideration paid in connection with the acquisition was approximately $8.03 billion and consisted of: (1) cash of $5.17 billion ($5.12 billion net of cash acquired); (2) 77.5 million Company Shares, with an approximate value of $2.82 billion, issued out of the Company's treasury; and (3) replacement awards issued to former Pinnacle employees representing the fair value attributable to pre-combination service (see Note 8) of $51.1 million.
In connection with the acquisition, we issued long-term debt of $8.33 billion (see Note 5) (which included funding under a new term loan agreement) and received cash proceeds of $575.0 million ($555.7 million net of related fees) from the issuance of common stock in an underwritten public offering. We used such proceeds for the payment of the cash portion of the Merger Consideration, the repayment of Pinnacle debt acquired, the refinancing of certain Conagra Brands debt, and the payment of related fees and expenses.
7
The following table summarizes our final allocation of the total purchase consideration to the fair values of the assets acquired and liabilities assumed at the acquisition date.
|
|
October 26,
2018
|
|
Cash and cash equivalents
|
|
$
|
47.0
|
|
Receivables
|
|
|
202.8
|
|
Inventories
|
|
|
649.3
|
|
Prepaid expenses and other current assets
|
|
|
15.0
|
|
Property, plant and equipment
|
|
|
719.5
|
|
Goodwill
|
|
|
7,026.0
|
|
Brands, trademarks and other intangibles
|
|
|
3,519.5
|
|
Other assets
|
|
|
25.4
|
|
Current liabilities
|
|
|
(607.6
|
)
|
Senior long-term debt, excluding current installments
|
|
|
(2,671.3
|
)
|
Noncurrent deferred tax liabilities
|
|
|
(810.0
|
)
|
Other noncurrent liabilities
|
|
|
(81.6
|
)
|
Total assets acquired and liabilities assumed
|
|
$
|
8,034.0
|
|
During the first half of fiscal 2020, we made adjustments to our initial allocations, which resulted in an increase to goodwill of $10.1 million primarily as the result of changes in the values of certain inventory, deferred income taxes, and other noncurrent liabilities as we refined our fair value estimates. These changes did not have a significant impact on our net income.
Goodwill represents the excess of the consideration transferred over the fair values of the assets acquired and liabilities assumed and is primarily attributable to synergies and intangible assets such as assembled workforce, which are not separately recognizable. Of the total goodwill, $236.7 million is deductible for tax purposes. Amortizable brands, trademarks and other intangibles totaled $668.7 million and have a weighted average estimated useful life of 25 years.
The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of Pinnacle had occurred on May 29, 2017, the beginning of fiscal year 2018. These unaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations.
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
February 24,
2019
|
|
|
February 24,
2019
|
|
Pro forma net sales
|
|
$
|
2,707.1
|
|
|
$
|
8,174.9
|
|
Pro forma net income attributable to Conagra Brands, Inc.
|
|
$
|
263.1
|
|
|
$
|
675.4
|
|
The pro forma results include adjustments for amortization of acquired intangible assets, depreciation, and interest expense on debt issued to finance the acquisition, as well as the related income taxes. The pro forma results also include the following material nonrecurring adjustments, along with the related income tax effect of the adjustments:
|
•
|
Acquisition related costs incurred by the Company of $1.2 million and $62.1 million for the third quarter and first three quarters of fiscal 2019, respectively, were excluded from the pro forma results. Acquisition related costs incurred by Pinnacle of $66.8 million for the first three quarters of fiscal 2019 were excluded from the pro forma results.
|
|
•
|
Non-recurring expense of $26.9 million and $51.3 million for the third quarter and first three quarters of fiscal 2019, respectively, related to the fair value adjustment to acquisition-date inventory estimated to have been sold was excluded from the pro forma results.
|
|
•
|
Non-recurring expense of $45.7 million for the first three quarters of fiscal 2019 related to securing bridge financing for the acquisition was excluded from the pro forma results.
|
8
3. DIVESTITURES AND ASSETS HELD FOR SALE
Lender's® Bagel Business
During the third quarter of fiscal 2020, we completed the sale of our Lender's® bagel business for net proceeds of $33.2 million, subject to final working capital adjustments. The business results were previously reported primarily in our Refrigerated & Frozen segment, and to a lesser extent within our Foodservice segment.
In connection with the pending sale of our Lender's® bagel business, we recognized an impairment charge of $27.6 million within selling, general and administrative ("SG&A") expenses in the second quarter of fiscal 2020.
The assets and liabilities classified as held for sale reflected in our Condensed Consolidated Balance Sheets related to the Lender's® bagel business were as follows:
|
|
May 26, 2019
|
|
Current assets
|
|
$
|
5.4
|
|
Noncurrent assets (including goodwill of $19.3 million)
|
|
|
62.3
|
|
Current liabilities
|
|
|
0.5
|
|
DSD Snacks Business
During the second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") Snacks business for net proceeds of $139.0 million, subject to final working capital adjustments. The business results were previously reported in our Grocery & Snacks segment.
In connection with the pending sale of our DSD Snacks business, we recognized an impairment charge of $31.4 million within SG&A expenses in the first quarter of fiscal 2020.
The assets and liabilities classified as held for sale reflected in our Condensed Consolidated Balance Sheet related to the DSD Snacks business were as follows:
|
|
May 26, 2019
|
|
Current assets
|
|
$
|
21.4
|
|
Noncurrent assets (including goodwill of $34.6 million)
|
|
|
156.2
|
|
Current liabilities
|
|
|
4.6
|
|
Other Divestitures
During the fourth quarter of fiscal 2019, we completed the sale of our Italian-based frozen pasta business, Gelit, for proceeds net of cash divested of $80.1 million, including working capital adjustments. The business results were previously reported in our Refrigerated & Frozen segment.
During the fourth quarter of fiscal 2019, we completed the sale of our Wesson® oil business for net proceeds of $168.3 million, including working capital adjustments. The business results were previously reported primarily in our Grocery & Snacks segment, and to a lesser extent within our Foodservice and International segments.
During the first quarter of fiscal 2019, we completed the sale of our Del Monte® processed fruit and vegetable business in Canada, which was previously reported in our International segment, for combined proceeds of $32.2 million. We recognized a gain on the sale of $13.2 million, included within SG&A expenses.
Other Assets Held for Sale
During the third quarter of fiscal 2020, we completed the sale of our peanut butter manufacturing facility in Streator, Illinois. The sale was part of a broader initiative to optimize the Company's peanut butter business, which also included the decision to exit the manufacture and sale of private label peanut butter. The business results were previously reported primarily in our Grocery & Snacks segment, and to a lesser extent within our Foodservice segment. We received net proceeds of $20.1 million, with additional expected proceeds of approximately $4.7 million by the end of fiscal 2020, subject to final working capital adjustments. These assets have been reclassified as assets held for sale within our Condensed Consolidated Balance Sheets for all periods presented.
9
In connection with this planned divestiture, we recognized impairment charges of $23.0 million within SG&A expenses in the first half of fiscal 2020. These charges have been included in restructuring activities.
In addition, we are actively marketing certain other assets. These assets have been reclassified as assets held for sale within our Condensed Consolidated Balance Sheets for periods prior to the disposal of these individual asset groups.
The assets classified as held for sale reflected in our Condensed Consolidated Balance Sheets were as follows:
|
|
February 23, 2020
|
|
|
May 26, 2019
|
|
Current assets
|
|
$
|
4.7
|
|
|
$
|
9.9
|
|
Noncurrent assets (including goodwill of $10.3 million at May 26, 2019)
|
|
|
3.1
|
|
|
|
43.9
|
|
4. RESTRUCTURING ACTIVITIES
Pinnacle Integration Restructuring Plan
In December 2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the ongoing integration of the recently acquired operations of Pinnacle for the purpose of achieving significant cost synergies between the companies (the "Pinnacle Integration Restructuring Plan"). We expect to incur material charges for exit and disposal activities under U.S. GAAP. Although we remain unable to make good faith estimates relating to the entire Pinnacle Integration Restructuring Plan, we are reporting on actions initiated through the end of the third quarter of fiscal 2020, including the estimated amounts or range of amounts for each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows. We have approved the incurrence of up to $360.0 million ($255.0 million of cash charges and $105.0 million of non-cash charges) in relation to operational expenditures under the Pinnacle Integration Restructuring Plan. We have incurred or expect to incur approximately $363.8 million of charges ($257.8 million of cash charges and $106.0 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan. In the third quarter and first three quarters of fiscal 2020, we recognized charges of $19.6 million and $63.5 million, respectively, in association with the Pinnacle Integration Restructuring Plan. In the third quarter and first three quarters of fiscal 2019, we recognized charges of $36.9 million and $139.5 million, respectively, in association with the Pinnacle Integration Restructuring Plan. We expect to incur costs related to the Pinnacle Integration Restructuring Plan through fiscal 2022.
We anticipate that we will recognize the following pre-tax expenses in association with the Pinnacle Integration Restructuring Plan (amounts include charges recognized from plan inception through the third quarter of fiscal 2020):
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
International
|
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
0.7
|
|
|
$
|
5.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.2
|
|
Other cost of goods sold
|
|
|
17.9
|
|
|
|
9.3
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
27.9
|
|
Total cost of goods sold
|
|
|
18.6
|
|
|
|
14.8
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
34.1
|
|
Severance and related costs
|
|
|
—
|
|
|
|
4.3
|
|
|
|
1.5
|
|
|
|
114.8
|
|
|
|
120.6
|
|
Asset impairment (net of gains on disposal)
|
|
|
54.6
|
|
|
|
8.3
|
|
|
|
—
|
|
|
|
2.9
|
|
|
|
65.8
|
|
Accelerated depreciation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7.4
|
|
|
|
7.4
|
|
Contract/lease termination
|
|
|
1.4
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
17.6
|
|
|
|
20.0
|
|
Consulting/professional fees
|
|
|
—
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
82.3
|
|
|
|
83.1
|
|
Other selling, general and administrative expenses
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
30.7
|
|
|
|
32.8
|
|
Total selling, general and administrative expenses
|
|
|
57.0
|
|
|
|
13.8
|
|
|
|
3.2
|
|
|
|
255.7
|
|
|
|
329.7
|
|
Consolidated total
|
|
$
|
75.6
|
|
|
$
|
28.6
|
|
|
$
|
3.9
|
|
|
$
|
255.7
|
|
|
$
|
363.8
|
|
10
During the third quarter of fiscal 2020, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
0.5
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
Total cost of goods sold
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
—
|
|
|
|
1.4
|
|
Severance and related costs
|
|
|
—
|
|
|
|
4.3
|
|
|
|
(0.4
|
)
|
|
|
3.9
|
|
Asset impairment (net of gains on disposal)
|
|
|
—
|
|
|
|
3.8
|
|
|
|
—
|
|
|
|
3.8
|
|
Accelerated depreciation
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Contract/lease termination
|
|
|
—
|
|
|
|
—
|
|
|
|
2.9
|
|
|
|
2.9
|
|
Consulting/professional fees
|
|
|
—
|
|
|
|
—
|
|
|
|
6.3
|
|
|
|
6.3
|
|
Other selling, general and administrative expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Total selling, general and administrative expenses
|
|
|
—
|
|
|
|
8.1
|
|
|
|
10.1
|
|
|
|
18.2
|
|
Consolidated total
|
|
$
|
0.5
|
|
|
$
|
9.0
|
|
|
$
|
10.1
|
|
|
$
|
19.6
|
|
Included in the above results are $12.7 million of charges that have resulted or will result in cash outflows and $6.9 million in non-cash charges.
During the first three quarters of fiscal 2020, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
International
|
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
0.5
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.9
|
|
Other cost of goods sold
|
|
|
0.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
Total cost of goods sold
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.0
|
|
Severance and related costs
|
|
|
—
|
|
|
|
4.3
|
|
|
|
0.2
|
|
|
|
4.0
|
|
|
|
8.5
|
|
Asset impairment (net of gains on disposal)
|
|
|
0.2
|
|
|
|
3.8
|
|
|
|
—
|
|
|
|
2.9
|
|
|
|
6.9
|
|
Accelerated depreciation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.7
|
|
|
|
2.7
|
|
Contract/lease termination
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14.7
|
|
|
|
14.7
|
|
Consulting/professional fees
|
|
|
—
|
|
|
|
—
|
|
|
|
0.6
|
|
|
|
21.6
|
|
|
|
22.2
|
|
Other selling, general and administrative expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6.5
|
|
|
|
6.5
|
|
Total selling, general and administrative expenses
|
|
|
0.2
|
|
|
|
8.1
|
|
|
|
0.8
|
|
|
|
52.4
|
|
|
|
61.5
|
|
Consolidated total
|
|
$
|
0.8
|
|
|
$
|
9.5
|
|
|
$
|
0.8
|
|
|
$
|
52.4
|
|
|
$
|
63.5
|
|
Included in the above results are $41.8 million of charges that have resulted or will result in cash outflows and $21.7 million in non-cash charges.
We recognized the following cumulative (plan inception to February 23, 2020) pre-tax expenses for the Pinnacle Integration Restructuring Plan related to our continuing operations in our Condensed Consolidated Statement of Operations:
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
International
|
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
0.5
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.9
|
|
Other cost of goods sold
|
|
|
1.6
|
|
|
|
1.5
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
3.8
|
|
Total cost of goods sold
|
|
|
2.1
|
|
|
|
2.9
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
5.7
|
|
Severance and related costs
|
|
|
—
|
|
|
|
4.3
|
|
|
|
1.5
|
|
|
|
114.8
|
|
|
|
120.6
|
|
Asset impairment (net of gains on disposal)
|
|
|
0.2
|
|
|
|
3.8
|
|
|
|
—
|
|
|
|
2.9
|
|
|
|
6.9
|
|
Accelerated depreciation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7.4
|
|
|
|
7.4
|
|
Contract/lease termination
|
|
|
—
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
15.0
|
|
|
|
15.8
|
|
Consulting/professional fees
|
|
|
—
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
59.7
|
|
|
|
60.5
|
|
Other selling, general and administrative expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
14.7
|
|
|
|
14.8
|
|
Total selling, general and administrative expenses
|
|
|
0.2
|
|
|
|
8.1
|
|
|
|
3.2
|
|
|
|
214.5
|
|
|
|
226.0
|
|
Consolidated total
|
|
$
|
2.3
|
|
|
$
|
11.0
|
|
|
$
|
3.9
|
|
|
$
|
214.5
|
|
|
$
|
231.7
|
|
Included in the above results are $203.0 million of charges that have resulted or will result in cash outflows and $28.7 million in non-cash charges.
11
Liabilities recorded for the Pinnacle Integration Restructuring Plan and changes therein for the first three quarters of fiscal 2020 were as follows:
|
|
Balance at
May 26,
2019
|
|
|
Costs Incurred
and Charged
to Expense
|
|
|
Costs Paid
or Otherwise
Settled
|
|
|
Changes in
Estimates
|
|
|
Balance at
February 23,
2020
|
|
Severance and related costs
|
|
$
|
76.9
|
|
|
$
|
10.4
|
|
|
$
|
(52.6
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
32.8
|
|
Contract termination
|
|
|
1.0
|
|
|
|
4.6
|
|
|
|
(3.9
|
)
|
|
|
—
|
|
|
|
1.7
|
|
Consulting/professional fees
|
|
|
18.4
|
|
|
|
22.2
|
|
|
|
(34.6
|
)
|
|
|
—
|
|
|
|
6.0
|
|
Other costs
|
|
|
1.2
|
|
|
|
6.5
|
|
|
|
(7.7
|
)
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
97.5
|
|
|
$
|
43.7
|
|
|
$
|
(98.8
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
40.5
|
|
Conagra Restructuring Plan
In the third quarter of fiscal 2019, we initiated a new restructuring plan for costs incurred in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan"). Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of the third quarter of fiscal 2020, including the estimated amounts or range of amounts for each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows. As of February 23, 2020, we have approved the incurrence of $129.8 million ($36.9 million of cash charges and $92.9 million of non-cash charges) for several projects associated with the Conagra Restructuring Plan. We have incurred or expect to incur $126.7 million of charges ($35.2 million of cash charges and $91.5 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan. In the third quarter and first three quarters of fiscal 2020, we recognized charges of $11.9 million and $52.6 million, respectively, in association with the Conagra Restructuring Plan. In the third quarter and first three quarters of fiscal 2019, we recognized charges of $1.0 million in association with the Conagra Restructuring Plan. We expect to incur costs related to the Conagra Restructuring Plan over a multi-year period.
We anticipate that we will recognize the following pre-tax expenses in association with the Conagra Restructuring Plan (amounts include charges recognized from plan inception through the third quarter of fiscal 2020):
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
International
|
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
40.2
|
|
|
$
|
20.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60.3
|
|
Other cost of goods sold
|
|
|
9.0
|
|
|
|
1.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10.0
|
|
Total cost of goods sold
|
|
|
49.2
|
|
|
|
21.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70.3
|
|
Severance and related costs
|
|
|
11.1
|
|
|
|
3.5
|
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
16.0
|
|
Asset impairment (net of gains on disposal)
|
|
|
25.0
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
25.3
|
|
Contract/lease termination
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.3
|
|
Other selling, general and administrative expenses
|
|
|
12.0
|
|
|
|
1.9
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
14.2
|
|
Total selling, general and administrative expenses
|
|
|
48.3
|
|
|
|
5.6
|
|
|
|
1.6
|
|
|
|
0.3
|
|
|
|
55.8
|
|
Total
|
|
$
|
97.5
|
|
|
$
|
26.7
|
|
|
$
|
1.6
|
|
|
$
|
0.3
|
|
|
$
|
126.1
|
|
Pension and postretirement non-service income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Consolidated total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
126.7
|
|
During the third quarter of fiscal 2020, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
8.3
|
|
|
$
|
—
|
|
|
$
|
8.3
|
|
Other cost of goods sold
|
|
|
1.2
|
|
|
|
—
|
|
|
|
1.2
|
|
Total cost of goods sold
|
|
|
9.5
|
|
|
|
—
|
|
|
|
9.5
|
|
Severance and related costs
|
|
|
0.3
|
|
|
|
1.2
|
|
|
|
1.5
|
|
Asset impairment (net of gains on disposal)
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
0.7
|
|
Other selling, general and administrative expenses
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Total selling, general and administrative expenses
|
|
|
0.9
|
|
|
|
1.5
|
|
|
|
2.4
|
|
Total
|
|
$
|
10.4
|
|
|
$
|
1.5
|
|
|
$
|
11.9
|
|
12
Included in the above results are $2.8 million in charges that have resulted or will result in cash outflows and $9.1 million in non-cash charges.
During the first three quarters of fiscal 2020, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
International
|
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
18.7
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19.6
|
|
Other cost of goods sold
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.4
|
|
Total cost of goods sold
|
|
|
19.9
|
|
|
|
1.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21.0
|
|
Severance and related costs
|
|
|
3.3
|
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
—
|
|
|
|
5.1
|
|
Asset impairment (net of gains on disposal)
|
|
|
25.0
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
25.3
|
|
Contract/lease termination
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Other selling, general and administrative expenses
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.5
|
|
Total selling, general and administrative expenses
|
|
|
28.6
|
|
|
|
1.7
|
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
31.0
|
|
Total
|
|
$
|
48.5
|
|
|
$
|
2.8
|
|
|
$
|
0.6
|
|
|
$
|
0.1
|
|
|
$
|
52.0
|
|
Pension and postretirement non-service income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Consolidated total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52.6
|
|
Included in the above results are $7.5 million of charges that have resulted or will result in cash outflows and $45.1 million in non-cash charges.
We recognized the following cumulative (plan inception to February 23, 2020) pre-tax expenses for the Conagra Restructuring Plan related to our continuing operations in our Condensed Consolidated Statement of Operations:
|
|
Grocery & Snacks
|
|
|
Refrigerated & Frozen
|
|
|
International
|
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
18.7
|
|
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20.4
|
|
Other cost of goods sold
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.4
|
|
Total cost of goods sold
|
|
|
19.9
|
|
|
|
1.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21.8
|
|
Severance and related costs
|
|
|
3.3
|
|
|
|
1.8
|
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
6.5
|
|
Asset impairment (net of gains on disposal)
|
|
|
25.0
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
25.3
|
|
Contract/lease termination
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Other selling, general and administrative expenses
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.5
|
|
Total selling, general and administrative expenses
|
|
|
28.6
|
|
|
|
2.2
|
|
|
|
1.3
|
|
|
|
0.3
|
|
|
|
32.4
|
|
Total
|
|
$
|
48.5
|
|
|
$
|
4.1
|
|
|
$
|
1.3
|
|
|
$
|
0.3
|
|
|
$
|
54.2
|
|
Pension and postretirement non-service income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Consolidated total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54.8
|
|
Included in the above results are $8.9 million of charges that have resulted or will result in cash outflows and $45.9 million in non-cash charges.
Liabilities recorded for the Conagra Restructuring Plan and changes therein for the first three quarters of fiscal 2020 were as follows:
|
|
Balance at
May 26,
2019
|
|
|
Costs Incurred
and Charged
to Expense
|
|
|
Costs Paid
or Otherwise
Settled
|
|
|
Changes in
Estimates
|
|
|
Balance at
February 23,
2020
|
|
Severance and related costs
|
|
$
|
1.2
|
|
|
$
|
5.6
|
|
|
$
|
(1.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
4.8
|
|
Contract termination
|
|
|
—
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
Other costs
|
|
|
—
|
|
|
|
1.7
|
|
|
|
(1.7
|
)
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
1.2
|
|
|
$
|
7.4
|
|
|
$
|
(3.3
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
4.8
|
|
Supply Chain and Administrative Efficiency Plan
As of February 23, 2020, we had substantially completed our restructuring activities related to our Supply Chain and Administrative Efficiency Plan (the "SCAE Plan"). In the third quarter and first three quarters of fiscal 2020, we recognized charges of
13
$0.3 million and $1.0 million, respectively, in connection with the SCAE Plan. In the third quarter and first three quarters of fiscal 2019, we recognized charges of $3.5 million and $8.6 million, respectively, in connection with the SCAE Plan.
We have recognized $470.9 million in pre-tax expenses ($103.3 million in cost of goods sold, $365.3 million in SG&A expenses, and $2.3 million in pension and postretirement non-service income) from the inception of the SCAE Plan through February 23, 2020, related to our continuing operations. Included in these results were $321.7 million of cash charges and $149.2 million of non-cash charges. Our total pre-tax expenses for the SCAE Plan related to our continuing operations are expected to be $471.2 million ($322.0 million of cash charges and $149.2 million of non-cash charges).
5. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Revolving Credit Facility
At February 23, 2020, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to increase to a maximum aggregate principal amount of $2.1 billion with the consent of the lenders). The Revolving Credit Facility matures on July 11, 2024 and is unsecured. The term of the Revolving Credit Facility may be extended for additional one-year or two-year periods from the then-applicable maturity date on an annual basis. As of February 23, 2020, there were no outstanding borrowings under the Revolving Credit Facility.
Pinnacle Acquisition Financing
In the first quarter of fiscal 2019, in connection with the announcement of the Pinnacle acquisition, we secured $9.0 billion in fully committed bridge financing. Prior to the acquisition, we capitalized financing costs related to the bridge financing of $45.7 million to be amortized over the commitment period. Our net interest expense included $11.9 million in the first half of fiscal 2019 as a result of this amortization. The bridge facility was terminated in connection with the Pinnacle acquisition, and we recognized $33.8 million of expense within SG&A expenses in the second quarter of fiscal 2019 for the remaining unamortized financing costs.
During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we issued senior unsecured notes in an aggregate principal amount of $7.025 billion. We issued the notes in seven tranches: floating rate notes due October 22, 2020 in an aggregate principal amount of $525.0 million with interest equal to three-month LIBOR plus 0.75%, 3.8% senior notes due October 22, 2021 in an aggregate principal amount of $1.20 billion; 4.3% senior notes due May 1, 2024 in an aggregate principal amount of $1.0 billion; 4.6% senior notes due November 1, 2025 in an aggregate principal amount of $1.0 billion; 4.85% senior notes due November 1, 2028 in an aggregate principal amount of $1.30 billion; 5.3% senior notes due November 1, 2038 in an aggregate principal amount of $1.0 billion; and 5.4% senior notes due November 1, 2048 in an aggregate principal amount of $1.0 billion.
During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we also borrowed $1.30 billion under a term loan agreement (the "Term Loan Agreement") with a syndicate of financial institutions providing for term loans to the Company in an aggregate principal amount of up to $1.30 billion. Our borrowings under the Term Loan Agreement consisted of a $650.0 million tranche of three-year term loans maturing on October 26, 2021 and a $650.0 million tranche of five-year term loans maturing on October 26, 2023.
In connection with our acquisition of Pinnacle, we prepaid in full $2.40 billion of obligations and liabilities of Pinnacle under or in respect of Pinnacle's credit agreement and other debt agreements. We also redeemed $350.0 million in aggregate principal amount of Pinnacle's outstanding 5.875% senior notes due January 15, 2024 and recognized a charge of $3.9 million in the second quarter of fiscal 2019 as a cost of early retirement of debt.
During the first quarter of fiscal 2020, we repaid $200.0 million of our borrowings under the Term Loan Agreement, which repayment consisted of $100.0 million of the three-year tranche loans and $100.0 million of the five-year tranche loans. During the third quarter of fiscal 2020, we repaid the remaining borrowings under the Term Loan Agreement of $200.0 million, which repayment consisted of $100.0 million of the three-year tranche loans and $100.0 million of the five-year tranche loans. The Term Loan Agreement was terminated after these repayments.
During the third quarter of fiscal 2020, we also redeemed $250.0 million in aggregate principal amount of our floating rate notes due October 22, 2020. This did not result in a significant gain or loss.
In the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts (see Note 7) to hedge a portion of the interest rate risk related to our anticipated issuance of long-term debt to help finance the Pinnacle acquisition. During the second quarter of fiscal 2019, we terminated the interest rate swap contracts and received proceeds of $47.5 million. This
14
gain was deferred in accumulated other comprehensive income and is being amortized as a reduction of interest expense over the lives of the related debt instruments. Our net interest expense was reduced by $0.9 million and $2.6 million during the third quarter and first three quarters of fiscal 2020, respectively, and $1.0 million and $1.2 million for the third quarter and first three quarters of fiscal 2019, respectively, due to the impact of these interest rate swap contracts.
General
The Revolving Credit Facility generally requires our ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense not to be less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from 5.25 through the first quarter of fiscal 2021 to 3.75 from the second quarter of fiscal 2023 and thereafter, with each ratio to be calculated on a rolling four-quarter basis. As of February 23, 2020, we were in compliance with all financial covenants under the Revolving Credit Facility.
Net interest expense consists of:
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
Long-term debt
|
|
$
|
120.6
|
|
|
$
|
133.4
|
|
|
$
|
368.1
|
|
|
$
|
252.5
|
|
Short-term debt
|
|
|
—
|
|
|
|
—
|
|
|
|
0.9
|
|
|
|
15.0
|
|
Interest income
|
|
|
(1.3
|
)
|
|
|
(1.9
|
)
|
|
|
(2.3
|
)
|
|
|
(5.0
|
)
|
Interest capitalized
|
|
|
(1.6
|
)
|
|
|
(0.6
|
)
|
|
|
(4.9
|
)
|
|
|
(2.0
|
)
|
|
|
$
|
117.7
|
|
|
$
|
130.9
|
|
|
$
|
361.8
|
|
|
$
|
260.5
|
|
Our accrued interest was $142.9 million and $61.3 million as of February 23, 2020 and May 26, 2019, respectively.
6. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for the first three quarters of fiscal 2020 was as follows:
|
|
Grocery &
Snacks
|
|
|
Refrigerated
& Frozen
|
|
|
International
|
|
|
Foodservice
|
|
|
Total
|
|
Balance as of May 26, 2019
|
|
$
|
4,741.3
|
|
|
$
|
5,642.4
|
|
|
$
|
299.0
|
|
|
$
|
752.7
|
|
|
$
|
11,435.4
|
|
Purchase accounting adjustments
|
|
|
3.5
|
|
|
|
5.9
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
10.1
|
|
Currency translation
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.4
|
)
|
|
|
—
|
|
|
|
(2.4
|
)
|
Balance as of February 23, 2020
|
|
$
|
4,744.8
|
|
|
$
|
5,648.3
|
|
|
$
|
297.3
|
|
|
$
|
752.7
|
|
|
$
|
11,443.1
|
|
Other identifiable intangible assets, excluding amounts classified as held for sale, were as follows:
|
|
February 23, 2020
|
|
|
May 26, 2019
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Non-amortizing intangible assets
|
|
$
|
3,544.1
|
|
|
$
|
—
|
|
|
$
|
3,559.6
|
|
|
$
|
—
|
|
Amortizing intangible assets
|
|
|
1,240.4
|
|
|
|
305.1
|
|
|
|
1,239.9
|
|
|
|
260.2
|
|
|
|
$
|
4,784.5
|
|
|
$
|
305.1
|
|
|
$
|
4,799.5
|
|
|
$
|
260.2
|
|
In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting segments, to reflect how the business is now being managed. Accordingly, we reassigned goodwill from the legacy Pinnacle segment to the applicable reporting units of the legacy Conagra segments, consistent with the Company's new management structure. The allocation of goodwill to Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice was $2.19 billion, $4.58 billion, $58.5 million, and $181.6 million, respectively. We tested goodwill for impairment both prior to and subsequent to the reallocation of Pinnacle goodwill and there were no impairments of goodwill. Such impairment tests are performed by estimating the fair value of each reporting unit and comparing that to the carrying amount of the net assets of the applicable reporting unit. If the estimated fair value of a reporting unit is less than its carrying value, such deficit is recognized as an impairment of goodwill.
Fair value is typically estimated using a discounted cash flow analysis which requires us to estimate the future cash flows as well as to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate cash flows
15
for a reporting unit over a discrete period (typically five years) and a terminal period (considering expected long-term growth rates and trends). With the assistance of a third-party valuation specialist, we used a discount rate for our domestic reporting units of 7% and rates ranging from 8% to 11% for our International reporting units. We used terminal growth rates between 1% and 2% for all reporting units (excluding one international reporting unit with a 3% terminal growth rate). Estimating the fair value of individual reporting units requires us to make assumptions and estimates in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows, discount rates, or terminal growth rates could produce substantially different estimates of the fair value of the reporting units.
Several of our reporting units have an estimated fair value substantially in excess of the carrying value. Three of our reporting units with aggregate goodwill of $3.5 billion have an estimated fair value that exceeds the respective carrying value as of our most recent testing date as follows:
|
|
Carrying Value of Goodwill
|
|
|
Excess Fair Value as of Fiscal 2020 Test Date
|
|
Sides, Components, Enhancers (part of Refrigerated & Frozen segment)
|
|
$
|
2,636.6
|
|
|
|
18.1
|
%
|
Foodservice
|
|
|
752.7
|
|
|
|
36.7
|
%
|
Canada (part of International segment)
|
|
|
96.2
|
|
|
|
32.0
|
%
|
If our future cash flow projections and other fair value assumptions for these reporting units change, we may be subject to potential impairment in subsequent quarters.
For our non-amortizing intangible assets, which are comprised of brands and trademarks, we use a "relief from royalty" methodology in estimating fair value. During the first quarter of fiscal 2020, we recorded impairment charges totaling $19.3 million within our Refrigerated & Frozen segment and Grocery & Snacks segment for certain brands for which management changed its business strategy and that continued to have lower than expected sales and profit margins. This impairment was included within SG&A expenses.
Amortizing intangible assets, carrying a remaining weighted average life of approximately 20 years, are principally composed of customer relationships and acquired intellectual property. Amortization expense was $14.9 million and $44.9 million for the third quarter and first three quarters of fiscal 2020, respectively, and $14.9 million and $34.0 million for the third quarter and first three quarters of fiscal 2019, respectively. Based on amortizing assets recognized in our Condensed Consolidated Balance Sheet as of February 23, 2020, amortization expense is estimated to average $57.3 million for each of the next five years.
7. DERIVATIVE FINANCIAL INSTRUMENTS
Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives.
Commodity and commodity index futures and option contracts are used from time to time to economically hedge commodity input prices on items such as natural gas, vegetable oils, proteins, packaging materials, dairy, grains, and electricity. Generally, we economically hedge a portion of our anticipated consumption of commodity inputs for periods of up to 36 months. We may enter into longer-term economic hedges on particular commodities, if deemed appropriate. As of February 23, 2020, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through December 2020.
In order to reduce exposures related to changes in foreign currency exchange rates, we enter into forward exchange, option, or swap contracts from time to time for transactions denominated in a currency other than the applicable functional currency. This includes, but is not limited to, hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign-denominated assets and liabilities. As of February 23, 2020, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through November 2020.
From time to time, we may use derivative instruments, including interest rate swaps, to reduce risk related to changes in interest rates. This includes, but is not limited to, hedging against increasing interest rates prior to the issuance of long-term debt and hedging the fair value of our senior long-term debt.
16
Derivatives Designated as Cash Flow Hedges
During the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts to hedge a portion of the interest rate risk related to our issuance of long-term debt to help finance the acquisition of Pinnacle. We settled these contracts during the second quarter of fiscal 2019 and deferred a $47.5 million gain in accumulated other comprehensive income. This gain will be amortized as a reduction of interest expense over the lives of the related debt instruments. The unamortized amount at February 23, 2020 was $42.9 million.
Economic Hedges of Forecasted Cash Flows
Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in the period in which the underlying item being economically hedged is recognized in cost of goods sold. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results immediately.
Economic Hedges of Fair Values — Foreign Currency Exchange Rate Risk
We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities (including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-to-market with gains and losses immediately recognized in SG&A expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged change.
All derivative instruments are recognized on our balance sheets at fair value (refer to Note 16 for additional information related to fair value measurements). The fair value of derivative assets is recognized within prepaid expenses and other current assets, while the fair value of derivative liabilities is recognized within other accrued liabilities. In accordance with U.S. GAAP, we offset certain derivative asset and liability balances, as well as certain amounts representing rights to reclaim cash collateral and obligations to return cash collateral, where master netting agreements provide for legal right of setoff. At February 23, 2020 and May 26, 2019, $4.0 million, representing a right to reclaim cash collateral, and $0.1 million, representing an obligation to return cash collateral, respectively, were included in prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.
Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or an obligation to return cash collateral were reflected in our Condensed Consolidated Balance Sheets as follows:
|
|
February 23,
2020
|
|
|
May 26,
2019
|
|
Prepaid expenses and other current assets
|
|
$
|
2.5
|
|
|
$
|
5.9
|
|
Other accrued liabilities
|
|
|
1.9
|
|
|
|
1.4
|
|
The following table presents our derivative assets and liabilities, at February 23, 2020, on a gross basis, prior to the setoff of $1.0 million to total derivative assets and $3.0 million to total derivative liabilities where legal right of setoff existed:
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Commodity contracts
|
|
Prepaid expenses and other
current assets
|
|
$
|
1.5
|
|
|
Other accrued liabilities
|
|
$
|
3.1
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other
current assets
|
|
|
—
|
|
|
Other accrued liabilities
|
|
|
1.8
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
1.5
|
|
|
|
|
$
|
4.9
|
|
17
The following table presents our derivative assets and liabilities at May 26, 2019, on a gross basis, prior to the setoff of $0.5 million to total derivative assets and $0.4 million to total derivative liabilities where legal right of setoff existed:
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Commodity contracts
|
|
Prepaid expenses and other
current assets
|
|
$
|
4.9
|
|
|
Other accrued liabilities
|
|
$
|
0.9
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other
current assets
|
|
|
1.4
|
|
|
Other accrued liabilities
|
|
|
0.9
|
|
Other
|
|
Prepaid expenses and other
current assets
|
|
|
0.1
|
|
|
Other accrued liabilities
|
|
|
—
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
6.4
|
|
|
|
|
$
|
1.8
|
|
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Condensed Consolidated Statements of Earnings were as follows:
|
|
Location in Condensed Consolidated
|
|
Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the
Thirteen Weeks Ended
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Statements of Earnings of Gains (Losses)
Recognized on Derivatives
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
(3.5
|
)
|
|
$
|
3.3
|
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
|
(2.2
|
)
|
|
|
(2.5
|
)
|
Total gains (losses) from derivative instruments not designated as hedging instruments
|
|
$
|
(5.7
|
)
|
|
$
|
0.8
|
|
|
|
Location in Condensed Consolidated
|
|
Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the
Thirty-nine Weeks Ended
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Statements of Earnings of Gains (Losses)
Recognized on Derivatives
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
(8.0
|
)
|
|
$
|
(3.3
|
)
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
|
(4.5
|
)
|
|
|
(0.1
|
)
|
Total losses from derivative instruments not designated as hedging instruments
|
|
$
|
(12.5
|
)
|
|
$
|
(3.4
|
)
|
As of February 23, 2020, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $91.3 million and $62.0 million for purchase and sales contracts, respectively. As of May 26, 2019, our open commodity contracts had a notional value of $140.1 million and $18.5 million for purchase and sales contracts, respectively. The notional amount of our foreign currency forward contracts as of February 23, 2020 and May 26, 2019 was $97.6 million and $88.2 million, respectively.
We enter into certain commodity, interest rate, and foreign exchange derivatives with a diversified group of counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties. We have not incurred a material loss due to nonperformance in any period presented and do not expect to incur any such material loss. We also enter into futures and options transactions through various regulated exchanges.
8. SHARE-BASED PAYMENTS
For the third quarter and first three quarters of fiscal 2020, we recognized total stock-based compensation expense (including stock options, restricted stock units, cash-settled restricted stock units, performance shares, performance-based restricted stock units, and cash-settled stock appreciation rights) of $9.3 million and $33.8 million, respectively. Included in the total stock-based compensation for the third quarter and first three quarters of fiscal 2020 is expense of $0.3 million and $1.0 million, respectively, for accelerated vesting of awards related to Pinnacle integration restructuring activities. For the third quarter and first three quarters of fiscal 2019, we recognized total stock-based compensation income of $18.6 million and expense of $16.6 million, respectively. Included in the total stock-based compensation for the third quarter and first three quarters of fiscal 2019 is income of $3.5 million and expense of $16.7 million, respectively, for accelerated vesting of awards related to Pinnacle integration restructuring activities, net of the impact of marking-to-market these awards based on a lower market price of Conagra common shares. In the first three quarters of
18
fiscal 2020, we granted 1.2 million restricted stock units at a weighted average grant date price of $28.21 and 0.6 million performance shares at a weighted average grant date price of $28.41.
During the second quarter of fiscal 2019, in connection with the completion of the Pinnacle acquisition, we granted the following awards to Pinnacle employees in replacement of their unvested equity awards that were outstanding as of the closing date: (1) 2.0 million cash-settled share unit awards at a grant date fair value of $36.37 per share unit and (2) 2.3 million cash-settled stock appreciation rights with a fair value estimated at closing date using a Black-Scholes option-pricing model and a grant date price of $36.37 per share. Approximately $51.1 million of the fair value of the replacement awards granted to Pinnacle employees was attributable to pre-combination service and was included in the purchase price and established as a liability. As of February 23, 2020, the liability of the replacement awards was $5.7 million, which includes post-combination service expense, the mark-to-market of the liability, and the impact of payouts since the acquisition. Post-combination expense of approximately $1.0 million, based on the market price of shares of Conagra Brands common stock as of February 23, 2020, is expected to be recognized related to the replacement awards over the remaining post-combination service period of approximately one year.
Performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goals for the three-year performance periods ending in fiscal 2020 (the "2020 performance period"), fiscal 2021 (the "2021 performance period"), and fiscal 2022 (the "2022 performance period") are based on our diluted earnings per share ("EPS") compound annual growth rate, subject to certain adjustments, measured over the defined performance periods. In addition, for certain participants, all performance shares for the 2020 performance period are subject to an overarching EPS goal that must be met in each fiscal year of the 2020 performance period before any pay out can be made to such participants on the performance shares. For each of the 2020 performance period, 2021 performance period, and 2022 performance period, the awards actually earned will range from zero to two hundred percent of the targeted number of performance shares for such performance period. Dividend equivalents are paid on the portion of performance shares actually earned at our regular dividend rate in additional shares of common stock.
Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in our performance share plan, any shares earned will be distributed after the end of the performance period, and only if the participant continues to be employed with the Company through the date of distribution. For awards where performance against the performance target has not been certified, the value of the performance shares is adjusted based upon the market price of our common stock and current forecasted performance against the performance targets at the end of each reporting period and amortized as compensation expense over the vesting period. Forfeitures are accounted for as they occur.
9. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings per share is computed on the basis of basic weighted average outstanding shares of common stock adjusted for the dilutive effect of stock options, restricted stock unit awards, and other dilutive securities. During the second quarter of fiscal 2019, we issued 77.5 million shares of our common stock out of treasury to the former shareholders of Pinnacle pursuant to the terms of the Merger Agreement. In addition, we issued 16.3 million shares of our common stock, par value $5.00 per share, in an underwritten public offering in connection with the financing of the Pinnacle acquisition, with net proceeds of $555.7 million (see Note 2).
19
The following table reconciles the income and average share amounts used to compute both basic and diluted earnings per share:
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
Net income attributable to Conagra Brands, Inc. common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders
|
|
$
|
204.4
|
|
|
$
|
242.0
|
|
|
$
|
638.7
|
|
|
$
|
553.7
|
|
Loss from discontinued operations, net of tax, attributable to Conagra Brands, Inc. common stockholders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.9
|
)
|
Net income attributable to Conagra Brands, Inc. common stockholders
|
|
$
|
204.4
|
|
|
$
|
242.0
|
|
|
$
|
638.7
|
|
|
$
|
551.8
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
487.4
|
|
|
|
486.2
|
|
|
|
487.1
|
|
|
|
431.3
|
|
Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities
|
|
|
1.4
|
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
1.8
|
|
Diluted weighted average shares outstanding
|
|
|
488.8
|
|
|
|
487.4
|
|
|
|
488.4
|
|
|
|
433.1
|
|
For the third quarter and first three quarters of fiscal 2020, there were 1.7 million and 1.9 million stock options outstanding, respectively, that were excluded from the computation of diluted weighted average shares because the effect was antidilutive. For the third quarter and first three quarters of fiscal 2019, there were 3.5 million and 1.8 million stock options outstanding, respectively, that were excluded from the calculation.
10. INVENTORIES
The major classes of inventories were as follows:
|
|
February 23,
2020
|
|
|
May 26,
2019
|
|
Raw materials and packaging
|
|
$
|
274.9
|
|
|
$
|
272.9
|
|
Work in process
|
|
|
175.5
|
|
|
|
126.9
|
|
Finished goods
|
|
|
1,124.4
|
|
|
|
1,083.1
|
|
Supplies and other
|
|
|
71.7
|
|
|
|
66.0
|
|
Total
|
|
$
|
1,646.5
|
|
|
$
|
1,548.9
|
|
11. INCOME TAXES
Income tax expense for the third quarter of fiscal 2020 and 2019 was $68.9 million and $67.2 million, respectively. Income tax expense for the first three quarters of fiscal 2020 and 2019 was $141.5 million and $147.0 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 25.2% and 21.7% for the third quarter of fiscal 2020 and 2019, respectively. The effective tax rate for the first three quarters of fiscal 2020 and 2019 was 18.1% and 20.9%, respectively.
The effective tax rate in the third quarter of fiscal 2020 reflects the following:
|
•
|
additional state income tax expense related to uncertain tax positions and
|
|
•
|
an adjustment of valuation allowance associated with the Wesson® oil business.
|
20
The effective tax rate for the first three quarters of fiscal 2020 reflects the above-cited items, as well as the impact of benefits from the settlement of tax issues that were previously reserved, a change in deferred state tax rates due to the integration of Pinnacle activity for tax purposes, a tax planning strategy that will allow utilization of certain state attributes, state tax law changes, additional tax expense associated with non-deductible goodwill related to assets for which an impairment charge was recognized, a benefit from statute lapses on tax issues that were previously reserved, and an income tax benefit associated with a deduction of a prior year federal income tax matter.
The effective tax rate in the third quarter of fiscal 2019 reflects the following:
|
•
|
a benefit recognized due to the non-taxability of the novation of a legacy guarantee,
|
|
•
|
a benefit recognized due to a reduction in the fair value of equity awards subject to limitations on deductibility that were issued to Pinnacle executives as replacement awards at the time of the acquisition, and
|
|
•
|
an increase to the deemed repatriation tax liability.
|
The effective tax rate for the first three quarters of fiscal 2019 reflects the above-cited items, as well as the impact of foreign restructuring resulting in a benefit related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made, additional tax expense on the repatriation of foreign earnings, an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson® oil business, additional tax expense on non-deductible facilitative costs associated with the acquisition of Pinnacle, and additional income tax expense related to state taxes.
The amount of gross unrecognized tax benefits for uncertain tax positions was $46.2 million as of February 23, 2020 and $44.1 million as of May 26, 2019. Included in those amounts was $8.5 million and $1.0 million, respectively, for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $8.1 million and $11.7 million as of February 23, 2020 and May 26, 2019, respectively.
The net amount of unrecognized tax benefits at February 23, 2020 and May 26, 2019 that, if recognized, would impact the Company's effective tax rate was $32.4 million and $37.3 million, respectively. Included in those amounts is $6.7 million that would be reported in discontinued operations. Recognition of these tax benefits would have a favorable impact on the Company's effective tax rate.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $20.9 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.
As of February 23, 2020 and May 26, 2019, we had a deferred tax asset of $688.9 million and $687.1 million, respectively, that was generated from the capital loss realized on the sale of the Private Brands operations with corresponding valuation allowances of $688.9 million and $687.1 million, respectively, to reflect the uncertainty regarding the ultimate realization of the tax asset. Federal capital loss carryforwards related to the Private Brands divestiture will expire in fiscal 2021.
We have not provided any deferred taxes on undistributed earnings of our foreign subsidiaries. Deferred taxes will be provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested and will result in a tax liability upon distribution.
In response to the COVID-19 outbreak, legislation concerning taxes has been passed in March 2020. While we are still assessing the impact of the legislation, we do not expect there to be a material impact to our consolidated financial statements at this time.
12. LEASES
We have operating and finance leases of certain warehouses, plants, land, office space, production and distribution equipment, automobiles, and office equipment. We determine whether an agreement is or contains a lease at lease inception. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
As most of our leases do not provide an implicit interest rate, we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the
21
rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.
We have elected not to separate lease and non-lease components of an agreement for all underlying asset classes prospectively from the ASC 842 adoption date.
Any lease arrangements with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheet. We recognize lease cost for these lease arrangements on a straight-line basis over the lease term.
Our lease terms may include options to extend or terminate the lease. We consider these options in determining the lease term used to establish our ROU asset and lease liabilities. A limited number of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Leases reported in our Condensed Consolidated Balance Sheet as of February 23, 2020 were as follows:
|
|
Operating Leases
|
|
|
|
Balance Sheet Location
|
|
February 23,
2020
|
|
ROU assets, net
|
|
Other assets
|
|
$
|
221.4
|
|
Lease liabilities (current)
|
|
Other accrued liabilities
|
|
|
47.5
|
|
Lease liabilities (noncurrent)
|
|
Other noncurrent liabilities
|
|
|
217.7
|
|
|
|
Finance Leases
|
|
|
|
Balance Sheet Location
|
|
February 23,
2020
|
|
ROU assets, at cost
|
|
Property, plant and equipment
|
|
$
|
213.8
|
|
Less accumulated depreciation
|
|
Less accumulated depreciation
|
|
|
(51.5
|
)
|
ROU assets, net
|
|
Property, plant and equipment, net
|
|
|
162.3
|
|
Lease liabilities (current)
|
|
Current installments of long-term debt
|
|
|
20.8
|
|
Lease liabilities (noncurrent)
|
|
Senior long-term debt, excluding current installments
|
|
|
131.6
|
|
The components of total lease cost for the third quarter and first three quarters of fiscal 2020 were as follows:
Lease cost
|
|
Thirteen weeks ended February 23, 2020
|
|
|
Thirty-nine weeks ended February 23, 2020
|
|
Operating lease cost
|
|
$
|
14.3
|
|
|
$
|
51.1
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
Depreciation of leased assets
|
|
|
3.9
|
|
|
|
11.6
|
|
Interest on lease liabilities
|
|
|
2.2
|
|
|
|
6.7
|
|
Short-term lease cost
|
|
|
1.4
|
|
|
|
2.8
|
|
Total lease cost
|
|
$
|
21.8
|
|
|
$
|
72.2
|
|
We recognized accelerated operating lease cost of $9.9 million and impairments of ROU assets of $2.9 million within SG&A expenses in the first three quarters of fiscal 2020. These charges are included in the Pinnacle Integration Restructuring Plan.
The weighted-average remaining lease terms and weighted-average discount rate for our leases as of February 23, 2020 were as follows:
|
|
Operating Leases
|
|
|
Finance Leases
|
|
Weighted-average remaining lease term (in years)
|
|
|
8.5
|
|
|
|
8.2
|
|
Weighted-average discount rate
|
|
|
3.62
|
%
|
|
|
5.41
|
%
|
22
Cash flows arising from lease transactions for the first three quarters of fiscal 2020 were as follows:
|
|
Thirty-Nine Weeks Ended February 23, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
41.8
|
|
Operating cash outflows from finance leases
|
|
|
6.9
|
|
Financing cash outflows from finance leases
|
|
|
15.8
|
|
ROU assets obtained in exchange for new lease liabilities:
|
|
|
|
|
Operating leases
|
|
|
40.1
|
|
Finance leases
|
|
|
2.8
|
|
Maturities of lease liabilities by fiscal year as of February 23, 2020 were as follows:
|
|
Operating Leases
|
|
|
Finance Leases
|
|
|
Total
|
|
2020 (remaining year)
|
|
$
|
14.8
|
|
|
$
|
7.1
|
|
|
$
|
21.9
|
|
2021
|
|
|
55.2
|
|
|
|
28.6
|
|
|
|
83.8
|
|
2022
|
|
|
42.0
|
|
|
|
27.2
|
|
|
|
69.2
|
|
2023
|
|
|
36.2
|
|
|
|
22.1
|
|
|
|
58.3
|
|
2024
|
|
|
27.8
|
|
|
|
17.9
|
|
|
|
45.7
|
|
Later years
|
|
|
138.1
|
|
|
|
90.7
|
|
|
|
228.8
|
|
Total lease payments
|
|
|
314.1
|
|
|
|
193.6
|
|
|
|
507.7
|
|
Less: Imputed interest
|
|
|
(48.9
|
)
|
|
|
(41.2
|
)
|
|
|
(90.1
|
)
|
Total lease liabilities
|
|
$
|
265.2
|
|
|
$
|
152.4
|
|
|
$
|
417.6
|
|
We have entered into lease agreements for certain facilities and equipment with payments totaling $9.1 million that have not yet commenced as of February 23, 2020.
A summary of non-cancelable operating lease commitments as of May 26, 2019 is as follows:
2020
|
|
$
|
52.1
|
|
2021
|
|
|
48.4
|
|
2022
|
|
|
38.0
|
|
2023
|
|
|
34.1
|
|
2024
|
|
|
25.6
|
|
Later years
|
|
|
114.4
|
|
|
|
$
|
312.6
|
|
Rent expense under all operating leases was $83.5 million in fiscal 2019. This amount is inclusive of certain charges recognized at the cease use date for remaining lease payments associated with exited properties.
13. CONTINGENCIES
Litigation Matters
We are a party to certain litigation matters relating to our acquisition of Beatrice Company ("Beatrice") in fiscal 1991, including litigation proceedings related to businesses divested by Beatrice prior to our acquisition of the company. These proceedings have included suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products Company, LLC, a wholly owned subsidiary of the Company ("ConAgra Grocery Products") as alleged successor to W. P. Fuller & Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. These lawsuits generally seek damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by the use of lead-based paint, and/or injunctive relief for inspection and abatement. When such lawsuits have been brought, ConAgra Grocery Products has denied liability, both on the merits of the claims and on the basis that we do not believe it to be the successor to any liability attributable to W. P. Fuller & Co. Decisions favorable to us were rendered in Rhode Island, New Jersey, Wisconsin, and Ohio. ConAgra Grocery Products was held liable for the abatement of a public nuisance in California, and the case was dismissed pursuant to settlement in July 2019 as discussed in the following paragraph. We remain a defendant in one active suit in Illinois. The Illinois suit seeks class-
23
wide relief for reimbursement of costs associated with the testing of lead levels in blood. We do not believe it is probable that we have incurred any liability with respect to the Illinois case, nor is it possible to estimate any potential exposure.
In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public nuisance in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On September 23, 2013, a trial of the California case concluded in the Superior Court of California for the County of Santa Clara, and on January 27, 2014, the court entered a judgment (the "Judgment") against ConAgra Grocery Products and two other defendants ordering the creation of a California abatement fund in the amount of $1.15 billion. Liability was joint and several. The Company appealed the Judgment, and on November 14, 2017 the California Court of Appeal for the Sixth Appellate District reversed in part, holding that the defendants were not liable to pay for abatement of homes built after 1950, but affirmed the Judgment as to homes built before 1951. The Court of Appeal remanded the case to the trial court with directions to recalculate the amount of the abatement fund estimated to be necessary to cover the cost of remediating pre-1951 homes, and to hold an evidentiary hearing regarding appointment of a suitable receiver. ConAgra Grocery Products and the other defendants petitioned the California Supreme Court for review of the decision, which we believe to be an unprecedented expansion of current California law. On February 14, 2018, the California Supreme Court denied the petition and declined to review the merits of the case, and the case was remanded to the trial court for further proceedings. ConAgra Grocery Products and the other defendants sought further review of certain issues from the Supreme Court of the United States, but on October 15, 2018, the Supreme Court declined to review the case. On September 4, 2018, the trial court recalculated its estimate of the amount needed to remediate pre-1951 homes in the plaintiff jurisdictions to be $409.0 million. As of July 10, 2019, the parties reached an agreement in principle to resolve this matter, which agreement was approved by the trial court on July 24, 2019, and the action against ConAgra Grocery Products was dismissed with prejudice. Pursuant to the settlement, ConAgra Grocery Products will pay a total of $101.7 million in seven installments to be paid annually from fiscal 2020 through fiscal 2026. As part of the settlement, ConAgra Grocery Products has provided a guarantee of up to $15.0 million in the event co-defendant, NL Industries, Inc., defaults on its payment obligations.
We have accrued $11.2 million and $63.2 million, within other accrued liabilities and other noncurrent liabilities, respectively, for this matter as of February 23, 2020. The extent of insurance coverage is uncertain and the Company's carriers are on notice; however, any possible insurance recovery has not been considered for purposes of determining our liability. We cannot assure that the final resolution of the lead paint and pigment matters will not have a material adverse effect on our financial condition, results of operations, or liquidity.
We are party to a number of putative class action lawsuits challenging various product claims made in the Company's product labeling. These matters include Briseno v. ConAgra Foods, Inc. in which it is alleged that the labeling for Wesson® oils as 100% natural is false and misleading because the oils contain genetically modified plants and organisms. In February 2015, the U.S. District Court for the Central District of California granted class certification to permit plaintiffs to pursue state law claims. The Company appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed class certification in January 2017. The Supreme Court of the United States declined to review the decision and the case was remanded to the trial court for further proceedings. On April 4, 2019, the trial court granted preliminary approval of a settlement in this matter. In the second quarter of fiscal 2020, a single objecting class member appealed the court's decision approving the settlement to the United States Court of Appeals for the Ninth Circuit. The settlement will not be final until the appeal has been resolved.
We are party to matters challenging the Company's wage and hour practices. These matters include a number of class actions consolidated under the caption Negrete v. ConAgra Foods, Inc., et al, pending in the U.S. District Court for the Central District of California, in which the plaintiffs allege a pattern of violations of California and/or federal law at several current and former Company manufacturing facilities across the State of California. While we cannot predict with certainty the results of this or any other legal proceeding, we do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business.
We are party to a number of matters asserting product liability claims against the Company related to certain Pam® and other cooking spray products. These lawsuits generally seek damages for personal injuries allegedly caused by defects in the design, manufacture, or safety warnings of the cooking spray products. We have put the Company's insurance carriers on notice. While we cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
The Company, its directors, and several of its executive officers are defendants in several class actions alleging violations of federal securities laws. The lawsuits assert that the Company's officers made material misstatements and omissions that caused the market to have an unrealistically positive assessment of the Company's financial prospects in light of the acquisition of Pinnacle, thus causing the Company's securities to be overvalued prior to the release of the Company's consolidated financial results on December 20, 2018 for the second quarter of fiscal year 2019. The first of these lawsuits, captioned West Palm Beach Firefighters' Pension Fund v. Conagra Brands, Inc., et al., with which subsequent lawsuits alleging similar facts have been consolidated, was filed on February 22, 2019 in the U.S. District Court for the Northern District of Illinois. In addition, on May 9, 2019, a shareholder filed a derivative
24
action on behalf of the Company against the Company's directors captioned Klein v. Arora, et al. in the U.S. District Court for the Northern District of Illinois asserting harm to the Company due to alleged breaches of fiduciary duty and mismanagement in connection with the Pinnacle acquisition. On July 9, 2019, September 20, 2019, and March 10, 2020, the Company received three separate demands from stockholders under Delaware law to inspect the Company's books and records related to the Board of Directors' review of the Pinnacle business, acquisition, and the Company's public statements related to them. On July 22, 2019 and August 6, 2019, respectively, two additional shareholder derivative lawsuits captioned Opperman v. Connolly, et al. and Dahl v. Connolly, et al. were filed in the U.S. District Court for the Northern District of Illinois asserting similar facts and claims as the Klein v. Arora, et al. matter. On October 21, 2019, the Company received an additional demand from a stockholder under Delaware law to appoint a special committee to investigate the conduct of certain officers and directors in connection with the Pinnacle acquisition and the Company's public statements. We have put the Company's insurance carriers on notice of each of these securities and shareholder matters. While we cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
Environmental Matters
We are a party to certain environmental proceedings relating to our acquisition of Beatrice in fiscal 1991. Such proceedings include proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The current environmental proceedings associated with Beatrice include litigation and administrative proceedings involving Beatrice's possible status as a potentially responsible party at approximately 40 Superfund, proposed Superfund, or state-equivalent sites (the "Beatrice sites"). These sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, polycholorinated biphenyls, acids, lead, sulfur, tannery wastes, and/or other contaminants. Reserves for these Beatrice environmental proceedings have been established based on our best estimate of the undiscounted remediation liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The accrual for Beatrice-related environmental matters totaled $58.2 million as of February 23, 2020, a majority of which relates to the Superfund and state-equivalent sites referenced above. During the third quarter of fiscal 2017, a final Remedial Investigation/Feasibility Study was submitted for the Southwest Properties portion ("Operating Unit 4") of the Wells G&H Superfund site, which is one of the Beatrice sites. The U.S. Environmental Protection Agency ("EPA") issued a Record of Decision ("ROD") for the Southwest Properties portion of the site on September 29, 2017 and has entered into negotiations with potentially responsible parties to determine final responsibility for implementing the ROD. Additionally, in conjunction with the conclusion of the fifth Five-Year Review period for Operating Unit 1 of the Wells G&H site, which spanned from October 1, 2014 to September 30, 2019, we are negotiating with the EPA to allow us to begin testing different environmental remediation methods to improve the efficiency and effectiveness of our current cleanup efforts affecting both Operating Units 1 and 2. As a result, in the second quarter of fiscal 2020, we increased our environmental reserves by $6.6 million associated with these expected cleanup efforts.
Guarantees and Other Contingencies
We guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to the spinoff of the Lamb Weston business (the "Spinoff"). The guarantee remained in place following completion of the Spinoff and it will remain in place until such guarantee obligation is substituted for guarantees issued by Lamb Weston. Pursuant to the separation and distribution agreement, dated as of November 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, this guarantee arrangement is deemed a liability of Lamb Weston that was transferred to Lamb Weston as part of the Spinoff. Accordingly, in the event that we are required to make any payments as a result of this guarantee arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement. Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2020 (subject, at Lamb Weston's option, to extension for two additional five-year periods). Under the terms of the sublease agreement, Lamb Weston is required to make certain rental payments to the sublessor. We have guaranteed the sublessor Lamb Weston's performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up to a maximum of $75.0 million. We believe the farmland associated with this sublease agreement is readily marketable for lease to other area farming operators. As such, we believe that any financial exposure to the Company, in the event that we were required to perform under the guarantee, would be largely mitigated.
In certain limited situations, we will guarantee an obligation of an unconsolidated entity. We guarantee certain leases resulting from the divestiture of the JM Swank business completed in the first quarter of fiscal 2017. As of February 23, 2020, the remaining terms of these arrangements did not exceed three years and the maximum amount of future payments we have guaranteed was $0.7 million. In addition, we guarantee a lease resulting from an exited facility. As of February 23, 2020, the remaining term of this arrangement did not exceed seven years and the maximum amount of future payments we have guaranteed was $17.1 million.
25
General
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity; however, it is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future which could have a material adverse effect on our financial condition, results of operations, or liquidity.
Costs of legal services associated with the foregoing matters are recognized in earnings as services are provided.
14. PENSION AND POSTRETIREMENT BENEFITS
We have defined benefit retirement plans ("plans") for eligible salaried and hourly employees. Benefits are based on years of credited service and average compensation or stated amounts for each year of service. We also sponsor postretirement plans which provide certain medical and dental benefits ("other postretirement benefits") to qualifying U.S. employees.
In connection with the acquisition of Pinnacle, we now include the components of pension and postretirement expense associated with the Pinnacle pension plans and post-employment benefit plan in our Condensed Consolidated Statements of Earnings from the date of the completion of the acquisition. These plans are frozen for future benefits. The tabular disclosures presented below are inclusive of the Pinnacle plans.
As a result of the anticipated exit of certain facilities, during the first quarter of fiscal 2020, we remeasured the Company's hourly pension plan as of August 25, 2019 and recorded a pension curtailment loss of $0.6 million previously within other comprehensive income (loss). In connection with the remeasurement, we updated the effective discount rate assumption for the impacted pension plan obligation from 3.90% to 3.13%. The curtailment loss and related remeasurement increased the underfunded status of the pension plan by $12.3 million with a corresponding loss within other comprehensive income (loss).
During the second quarter of fiscal 2020, the Company provided a voluntary lump-sum settlement offer to certain terminated vested participants in the salaried pension plan in order to reduce a portion of the pension obligation. During the third quarter of fiscal 2020, lump-sum settlement payments totaling $154.6 million were distributed from pension plan assets to such participants. As a result of the settlement, we were required to remeasure our pension plan liability. In connection with the remeasurement, we updated the effective discount rate assumption for the impacted pension plan obligation from 3.89% to 3.37%, as of December 31, 2019. The settlement and related remeasurement resulted in the recognition of a settlement gain of $2.1 million, reflected in pension and postretirement non-service income, as well as a benefit to other comprehensive income (loss) totaling $79.8 million in the third quarter of fiscal 2020.
During the third quarter of fiscal 2020, we amended a certain hourly pension plan that will freeze future compensation and service periods. As a result, we remeasured the Company’s hourly pension plan liability as of January 31, 2020 and recorded a pension curtailment loss of $0.2 million previously within other comprehensive income (loss). In connection with the remeasurement, we updated the effective discount rate assumption for the impacted pension plan from 3.86% to 2.96%. The remeasurement increased the underfunded status of the pension plan by $4.3 million with a corresponding loss within other comprehensive income (loss).
Components of pension benefit and other postretirement benefit costs are:
|
|
Pension Benefits
|
|
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
Service cost
|
|
$
|
2.8
|
|
|
$
|
2.8
|
|
|
$
|
8.4
|
|
|
$
|
8.3
|
|
Interest cost
|
|
|
27.8
|
|
|
|
34.0
|
|
|
|
89.8
|
|
|
|
98.7
|
|
Expected return on plan assets
|
|
|
(42.0
|
)
|
|
|
(44.6
|
)
|
|
|
(124.7
|
)
|
|
|
(130.1
|
)
|
Amortization of prior service cost
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
2.0
|
|
|
|
2.1
|
|
Curtailment loss
|
|
|
0.2
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
—
|
|
Settlement gain
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
|
(2.1
|
)
|
|
|
—
|
|
Benefit cost (benefit) — Company plans
|
|
|
(12.6
|
)
|
|
|
(7.1
|
)
|
|
|
(25.8
|
)
|
|
|
(21.0
|
)
|
Pension benefit cost — multi-employer plans
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
5.0
|
|
|
|
4.9
|
|
Total benefit cost (benefit)
|
|
$
|
(11.1
|
)
|
|
$
|
(5.7
|
)
|
|
$
|
(20.8
|
)
|
|
$
|
(16.1
|
)
|
26
|
|
Postretirement Benefits
|
|
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
|
February 23,
2020
|
|
|
February 24,
2019
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest cost
|
|
|
0.6
|
|
|
|
1.0
|
|
|
|
1.9
|
|
|
|
2.9
|
|
Amortization of prior service benefit
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(1.5
|
)
|
|
|
(1.5
|
)
|
Recognized net actuarial gain
|
|
|
(1.1
|
)
|
|
|
(0.4
|
)
|
|
|
(3.4
|
)
|
|
|
(1.2
|
)
|
Curtailment gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.6
|
)
|
Total cost (benefit)
|
|
$
|
(1.0
|
)
|
|
$
|
0.1
|
|
|
$
|
(2.9
|
)
|
|
$
|
(0.3
|
)
|
The Company uses a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.
The weighted-average discount rates for service and interest costs under the spot-rate approach used for pension benefit cost as of May 27, 2019 were 4.04% and 3.51%, respectively. The weighted-average discount rates for service and interest costs subsequent to January 31, 2020 were 3.74% and 3.26%, respectively.
During the third quarter and first three quarters of fiscal 2020, we contributed $3.6 million and $11.0 million, respectively, to our pension plans and contributed $2.2 million and $4.2 million, respectively, to our other postretirement plans. Based upon the current funded status of the plans and the current interest rate environment, we anticipate making further contributions of approximately $3.2 million to our pension plans for the remainder of fiscal 2020. We anticipate making further contributions of approximately $6.6 million to our other postretirement plans during the remainder of fiscal 2020. These estimates are based on ERISA guidelines, current tax laws, plan asset performance, and liability assumptions, which are subject to change.
27
15. STOCKHOLDERS' EQUITY
The following table presents a reconciliation of our stockholders' equity accounts for the thirty-nine weeks ended February 23, 2020:
|
|
Conagra Brands, Inc. Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
Balance at May 26, 2019
|
|
|
584.2
|
|
|
$
|
2,921.2
|
|
|
$
|
2,286.0
|
|
|
$
|
5,047.9
|
|
|
$
|
(110.3
|
)
|
|
$
|
(2,760.2
|
)
|
|
$
|
79.1
|
|
|
$
|
7,463.7
|
|
Stock option and incentive plans
|
|
|
|
|
|
|
|
|
|
|
(8.5
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
16.0
|
|
|
|
(0.2
|
)
|
|
|
7.0
|
|
Currency translation adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
(11.6
|
)
|
Derivative adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
Activities of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Pension and postretirement healthcare benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.4
|
)
|
Dividends declared on common stock; $0.2125 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.4
|
)
|
Net income attributable to Conagra Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173.8
|
|
Balance at August 25, 2019
|
|
|
584.2
|
|
|
$
|
2,921.2
|
|
|
$
|
2,277.5
|
|
|
$
|
5,118.0
|
|
|
$
|
(132.4
|
)
|
|
$
|
(2,744.2
|
)
|
|
$
|
76.7
|
|
|
$
|
7,516.8
|
|
Stock option and incentive plans
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
13.5
|
|
Currency translation adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Derivative adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
Activities of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
1.8
|
|
Pension and postretirement healthcare benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Dividends declared on common stock; $0.2125 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.4
|
)
|
Net income attributable to Conagra Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260.5
|
|
Balance at November 24, 2019
|
|
|
584.2
|
|
|
$
|
2,921.2
|
|
|
$
|
2,286.9
|
|
|
$
|
5,274.7
|
|
|
$
|
(131.0
|
)
|
|
$
|
(2,739.7
|
)
|
|
$
|
78.5
|
|
|
$
|
7,690.6
|
|
Stock option and incentive plans
|
|
|
|
|
|
|
|
|
|
|
6.1
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
7.3
|
|
|
0.2
|
|
|
|
13.3
|
|
Currency translation adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
3.8
|
|
Derivative adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
Activities of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Pension and postretirement healthcare benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56.0
|
|
|
|
|
|
|
|
|
|
|
|
56.0
|
|
Dividends declared on common stock; $0.2125 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.6
|
)
|
Net income attributable to Conagra Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204.4
|
|
Balance at February 23, 2020
|
|
|
584.2
|
|
|
$
|
2,921.2
|
|
|
$
|
2,293.0
|
|
|
$
|
5,375.2
|
|
|
$
|
(72.0
|
)
|
|
$
|
(2,732.4
|
)
|
|
$
|
78.9
|
|
|
$
|
7,863.9
|
|
28
The following table presents a reconciliation of our stockholders' equity accounts for the thirty-nine weeks ended February 24, 2019:
|
|
Conagra Brands, Inc. Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
Balance at May 27, 2018
|
|
|
567.9
|
|
|
$
|
2,839.7
|
|
|
$
|
1,180.0
|
|
|
$
|
4,744.9
|
|
|
$
|
(110.5
|
)
|
|
$
|
(4,977.9
|
)
|
|
$
|
80.4
|
|
|
$
|
3,756.6
|
|
Stock option and incentive plans
|
|
|
|
|
|
|
|
|
|
|
(14.1
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
23.3
|
|
|
|
0.1
|
|
|
|
9.8
|
|
Adoption of ASU 2016-01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Adoption of ASU 2014-09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Currency translation adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
(3.0
|
)
|
Derivative adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(43.4
|
)
|
Activities of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
—
|
|
Pension and postretirement healthcare benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
Dividends declared on common stock; $0.2125 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83.2
|
)
|
Net income attributable to Conagra Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178.2
|
|
Balance at August 26, 2018
|
|
|
567.9
|
|
|
$
|
2,839.7
|
|
|
$
|
1,165.6
|
|
|
$
|
4,841.5
|
|
|
$
|
(155.7
|
)
|
|
$
|
(4,954.6
|
)
|
|
$
|
78.5
|
|
|
$
|
3,815.0
|
|
Stock option and incentive plans
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
6.0
|
|
Currency translation adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.8
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(15.7
|
)
|
Issuance of treasury shares
|
|
|
|
|
|
|
|
|
|
|
638.2
|
|
|
|
|
|
|
|
|
|
|
|
2,178.1
|
|
|
|
|
|
|
|
2,816.3
|
|
Issuance of common stock
|
|
|
16.3
|
|
|
|
81.5
|
|
|
|
474.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555.7
|
|
Derivative adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79.2
|
|
|
|
|
|
|
|
|
|
|
|
79.2
|
|
Activities of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
2.2
|
|
Pension and postretirement healthcare benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
Dividends declared on common stock; $0.2125 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86.8
|
)
|
Net income attributable to Conagra Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131.6
|
|
Balance at November 25, 2018
|
|
|
584.2
|
|
|
$
|
2,921.2
|
|
|
$
|
2,280.8
|
|
|
$
|
4,886.4
|
|
|
$
|
(91.5
|
)
|
|
$
|
(2,772.8
|
)
|
|
$
|
79.2
|
|
|
$
|
7,303.3
|
|
Stock option and incentive plans
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
|
|
4.0
|
|
Currency translation adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
7.4
|
|
Derivative adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Activities of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
Pension and postretirement healthcare benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Dividends declared on common stock; $0.2125 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.2
|
)
|
Net income attributable to Conagra Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242.0
|
|
Balance at February 24, 2019
|
|
|
584.2
|
|
|
$
|
2,921.2
|
|
|
$
|
2,277.2
|
|
|
$
|
5,025.3
|
|
|
$
|
(85.7
|
)
|
|
$
|
(2,765.0
|
)
|
|
$
|
78.5
|
|
|
$
|
7,451.5
|
|
16. FAIR VALUE MEASUREMENTS
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2 — Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and
29
Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
The fair values of our Level 2 derivative instruments were determined using valuation models that use market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent commodity and foreign currency option and forward contracts and cross-currency swaps.
The following table presents our financial assets and liabilities measured at fair value on a recurring basis, based upon the level within the fair value hierarchy in which the fair value measurements fall, as of February 23, 2020:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Net Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
2.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.5
|
|
Marketable securities
|
|
|
10.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10.9
|
|
Deferred compensation assets
|
|
|
9.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9.2
|
|
Total assets
|
|
$
|
22.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22.6
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
1.9
|
|
Deferred compensation liabilities
|
|
|
71.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71.6
|
|
Total liabilities
|
|
$
|
71.6
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
73.5
|
|
The following table presents our financial assets and liabilities measured at fair value on a recurring basis, based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 26, 2019:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Net Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
3.0
|
|
|
$
|
2.9
|
|
|
$
|
—
|
|
|
$
|
5.9
|
|
Marketable securities
|
|
|
15.7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15.7
|
|
Deferred compensation assets
|
|
|
10.7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10.7
|
|
Total assets
|
|
$
|
29.4
|
|
|
$
|
2.9
|
|
|
$
|
—
|
|
|
$
|
32.3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
Deferred compensation liabilities
|
|
|
70.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70.4
|
|
Total liabilities
|
|
$
|
70.4
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
71.8
|
|
Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, and cost and equity investments, are measured at fair value on a nonrecurring basis using Level 3 inputs.
In the third quarter of fiscal 2020, we recognized charges of $3.8 million in the Refrigerated & Frozen segment for the impairment of certain long-lived assets. The impairment was measured based upon the estimated sales price of the assets.
In the first half of fiscal 2020, we recognized charges of $54.4 million and $27.6 million in the Grocery & Snacks and Refrigerated & Frozen segments, respectively, for the impairment of certain long-lived assets. The impairments were measured based upon the estimated sales price of the assets held for sale.
In the first half of fiscal 2020, we recognized charges of $2.9 million in general corporate expenses related to the impairments of ROU assets. The impairments were measured based upon a discounted cash flow approach.
In the first quarter of fiscal 2020, we recognized charges for the impairment of certain indefinite-lived brands. The fair values of these brands were estimated using the "relief from royalty" method (See Note 6). Impairments in our Grocery & Snacks and Refrigerated & Frozen segments totaled $3.5 million and $15.8 million, respectively.
In the third quarter and first three quarters of fiscal 2019, we recognized charges of $0.3 million and $1.6 million, respectively, in general corporate expenses for the impairment of certain long-lived assets. The impairments were measured based upon the estimated sales price of the assets.
30
The carrying amount of long-term debt (including current installments) was $10.02 billion and $10.68 billion as of February 23, 2020 and May 26, 2019, respectively. Based on current market rates, the fair value of this debt (level 2 liabilities) at February 23, 2020 and May 26, 2019, was estimated at $11.39 billion and $11.24 billion, respectively.
17. BUSINESS SEGMENTS AND RELATED INFORMATION
In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting segments in order to better reflect how the business is now being managed. We now reflect our results of operations in four reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice. Prior periods have been reclassified to conform to the revised segment presentation.
The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States.
The Refrigerated & Frozen reporting segment includes branded, temperature-controlled food products sold in various retail channels in the United States.
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments primarily in the United States.
We do not aggregate operating segments when determining our reporting segments.
Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate expense, net interest expense, and income taxes have been excluded from segment operations.
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
February 23, 2020
|
|
|
February 24, 2019
|
|
|
February 23, 2020
|
|
|
February 24, 2019
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks
|
|
$
|
1,022.9
|
|
|
$
|
1,129.8
|
|
|
$
|
3,143.0
|
|
|
$
|
2,901.0
|
|
Refrigerated & Frozen
|
|
|
1,076.8
|
|
|
|
1,094.3
|
|
|
|
3,204.2
|
|
|
|
2,636.2
|
|
International
|
|
|
220.9
|
|
|
|
228.3
|
|
|
|
659.6
|
|
|
|
640.4
|
|
Foodservice
|
|
|
234.4
|
|
|
|
254.7
|
|
|
|
759.7
|
|
|
|
747.6
|
|
Total net sales
|
|
$
|
2,555.0
|
|
|
$
|
2,707.1
|
|
|
$
|
7,766.5
|
|
|
$
|
6,925.2
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks
|
|
$
|
199.4
|
|
|
$
|
225.0
|
|
|
$
|
614.8
|
|
|
$
|
623.2
|
|
Refrigerated & Frozen
|
|
|
190.7
|
|
|
|
189.1
|
|
|
|
533.7
|
|
|
|
441.4
|
|
International
|
|
|
22.3
|
|
|
|
29.9
|
|
|
|
73.5
|
|
|
|
89.7
|
|
Foodservice
|
|
|
27.2
|
|
|
|
36.8
|
|
|
|
96.6
|
|
|
|
98.8
|
|
Total operating profit
|
|
$
|
439.6
|
|
|
$
|
480.8
|
|
|
$
|
1,318.6
|
|
|
$
|
1,253.1
|
|
Equity method investment earnings
|
|
|
10.4
|
|
|
|
12.7
|
|
|
|
50.3
|
|
|
|
66.6
|
|
General corporate expense
|
|
|
75.1
|
|
|
|
62.6
|
|
|
|
262.3
|
|
|
|
386.8
|
|
Pension and postretirement non-service income
|
|
|
(16.4
|
)
|
|
|
(9.8
|
)
|
|
|
(37.2
|
)
|
|
|
(29.7
|
)
|
Interest expense, net
|
|
|
117.7
|
|
|
|
130.9
|
|
|
|
361.8
|
|
|
|
260.5
|
|
Income tax expense
|
|
|
68.9
|
|
|
|
67.2
|
|
|
|
141.5
|
|
|
|
147.0
|
|
Income from continuing operations
|
|
$
|
204.7
|
|
|
$
|
242.6
|
|
|
$
|
640.5
|
|
|
$
|
555.1
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
1.8
|
|
|
|
1.4
|
|
Income from continuing operations attributable to Conagra Brands, Inc.
|
|
$
|
204.4
|
|
|
$
|
242.0
|
|
|
$
|
638.7
|
|
|
$
|
553.7
|
|
31
The following table presents further disaggregation of our net sales:
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
February 23, 2020
|
|
|
February 24, 2019
|
|
|
February 23, 2020
|
|
|
February 24, 2019
|
|
Frozen
|
|
|
910.3
|
|
|
|
899.0
|
|
|
|
2,600.6
|
|
|
|
2,053.4
|
|
Other shelf-stable
|
|
|
639.1
|
|
|
|
723.5
|
|
|
|
1,921.0
|
|
|
|
1,810.6
|
|
Snacks
|
|
|
383.8
|
|
|
|
406.3
|
|
|
|
1,222.0
|
|
|
|
1,090.4
|
|
Foodservice
|
|
|
234.4
|
|
|
|
254.7
|
|
|
|
759.7
|
|
|
|
747.6
|
|
International
|
|
|
220.9
|
|
|
|
228.3
|
|
|
|
659.6
|
|
|
|
640.4
|
|
Refrigerated
|
|
|
166.5
|
|
|
|
195.3
|
|
|
|
603.6
|
|
|
|
582.8
|
|
Total net sales
|
|
$
|
2,555.0
|
|
|
$
|
2,707.1
|
|
|
$
|
7,766.5
|
|
|
$
|
6,925.2
|
|
Presentation of Derivative Gains (Losses) for Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately.
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
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Thirteen weeks ended
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Thirty-nine weeks ended
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|
|
|
February 23, 2020
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|
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February 24, 2019
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|
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February 23, 2020
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|
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February 24, 2019
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Gross derivative gains (losses) incurred
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$
|
(5.7
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)
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|
$
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0.8
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|
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$
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(12.5
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)
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|
$
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(3.4
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)
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Less: Net derivative gains (losses) allocated to reporting segments
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|
|
(1.9
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)
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|
|
1.0
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|
|
|
(3.3
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)
|
|
|
0.4
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|
Net derivative losses recognized in general corporate expenses
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|
$
|
(3.8
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)
|
|
$
|
(0.2
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)
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|
$
|
(9.2
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)
|
|
$
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(3.8
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)
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Net derivative losses allocated to Grocery & Snacks
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|
$
|
(0.9
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)
|
|
$
|
—
|
|
|
$
|
(1.5
|
)
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|
$
|
(1.0
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)
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Net derivative losses allocated to Refrigerated & Frozen
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|
|
—
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|
|
|
(0.2
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)
|
|
|
(0.7
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)
|
|
|
(0.7
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)
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Net derivative gains (losses) allocated to International
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|
|
(0.8
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)
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|
|
1.3
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|
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|
(1.1
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)
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2.4
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Net derivative losses allocated to Foodservice
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|
|
(0.2
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)
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|
|
(0.1
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)
|
|
|
—
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|
|
|
(0.3
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)
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Net derivative gains (losses) included in segment operating profit
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|
$
|
(1.9
|
)
|
|
$
|
1.0
|
|
|
$
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(3.3
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)
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|
$
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0.4
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|
As of February 23, 2020, the cumulative amount of net derivative losses from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $7.8 million. This amount reflected net losses of $8.0 million incurred during the thirty-nine weeks ended February 23, 2020 and net gains of $0.2 million incurred prior to fiscal 2020. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results losses of $3.9 million in fiscal 2020 and losses of $3.9 million in fiscal 2021 and thereafter.
Assets by Segment
The majority of our manufacturing assets are shared across multiple reporting segments. Output from these facilities used by each reporting segment can change over time. Also, working capital balances are not tracked by reporting segment. Therefore, it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment. Total depreciation expense was $84.2 million and $247.6 million for the third quarter and first three quarters of fiscal 2020, respectively, and $77.4 million and $198.6 million for the third quarter and first three quarters of fiscal and 2019, respectively.
Other Information
Our operations are principally in the United States. With respect to operations outside of the United States, no single foreign country or geographic region was significant with respect to consolidated operations for the third quarter and first three quarters of fiscal 2020 and 2019. Foreign net sales, including sales by domestic segments to customers located outside of the United States, were
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approximately $228.0 million and $237.5 million in the third quarter of fiscal 2020 and 2019, respectively. Our foreign net sales during the first three quarters of fiscal 2020 and 2019 were approximately $675.9 million and $683.1 million, respectively. Our long-lived assets located outside of the United States are not significant.
Our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 27% of consolidated net sales in the third quarter of both fiscal 2020 and 2019 and approximately 26% in the first three quarters of both fiscal 2020 and 2019, primarily in the Grocery & Snacks and Refrigerated & Frozen segments.
Walmart, Inc. and its affiliates accounted for approximately 33% of consolidated net receivables as of February 23, 2020 and approximately 30% as of May 26, 2019.
We offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The third-party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third party, or any financial institutions concerning this service. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of February 23, 2020, $223.9 million of our total accounts payable is payable to suppliers who utilize this third-party service.
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